As the UK bounces back from recession, this is the right time to start making more from your income and building financial independence.
Although a crucial part of life, planning your finances for the future can seem daunting, particularly when times are tough. The idea of financial independence feels like a distant dream for many. From helping plan for a comfortable retirement to creating a cushion in an emergency, the importance of financial independence cannot be overstated.
Whether financial independence seems like a distant goal, or you’re already on track - it’s crucial you have a step-by-step plan. In this article, we are going to help you do just that.
Discovering 4 practical steps to achieving financial independence, we bring you the code to navigating your financial journey with ease.
Let’s get started!
Step 1. Establish Clear Financial Goals
Before anything else, the first step is setting clear goals and expectations. One of the biggest mistakes that people make is not deciding exactly what they want to achieve, and therefore not achieving anything.
When asked how much money do you think you need, most people would just say, “Oh a million pounds would be perfect,” but that’s not how it works.
Before you think about financial independence, you need to know exactly what it means for you. Is it retiring early, owning a home, or living debt-free?
Defining these goals will not only help you get a clearer direction whilst keeping you focused and motivated to achieve your financial aspirations.
Step 2. Create and Stick to a Budget
Now that you have a clear plan, it’s time to figure out what you can do to take a step closer to your dreams. The trick is to start by managing and tracking even the smallest aspects of your financial life, i.e. budgeting.
Regardless of what you hear, budgeting is the cornerstone of financial planning. By effectively tracking your income and expenses, you can first ensure you’re living within your means whilst hopefully making room for savings.
If you’re looking for a step-by-step strategy to manage your budget better, our top blog on budgeting is the perfect guide.
Step 3. Eliminate and Manage Debt
With your budget in place, it’s time to move on to the next big step to financial independence. Managing, or better yet, eliminating debt.
Whether you want to entirely eliminate it or learn to manage it is completely up to you. However, to begin with, it’s best to first get rid of any previous high-interest debt or credit balances that you have pending.
Focus on making room in your budget for the larger debt repayments every month. If you’re struggling to keep on top of debt, it may be worth looking into debt consolidation or refinancing options to help you manage your debt better.
Regardless of what you choose, make it a priority to eliminate the most damaging debt first. This will free up more money for savings and future planning. If you want a thorough debt repayment plan, take a look at this insightful blog on debt management.
Step 4. Build an Emergency Fund
Getting on top of debt takes time, focus and consistent effort - and will probably come with a few slip ups along the way. However, once you’ve balanced your budget and are on top of your debt, it’s time to build an emergency fund to fall back on. Probably the most crucial and final component of financial independence, an emergency fund gives you a soft financial cushion.
Most would advise building an emergency fund that cushions for 6 months of living expenses. Remember, although this might sound unachievable or daunting, saving is a marathon and not a sprint.
This will give you a safety net to fall back on, if you ever need it - giving peace of mind and hopefully reducing financial stress.
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The journey to financial independence may not be a one-size-fits-all approach, but there are many benefits. With some discipline, diligence and the right plan, you can effectively achieve your goals.
However, as one of the leading online lenders in the UK, we understand that the road to financial independence may not be the same for all. That’s why we're here to help you with any immediate financial assistance or support that you may need.
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